TaxTMI 
TaxTMI 
2018 (3) TMI 725
X X X X Extracts X X X X
X X X X Extracts X X X X
....2. The grounds of appeal raised by the Revenue in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called "the tribunal") read as under:- "(i) "On the facts and in the circumstances of the case and in law, whether the learned CIT(A) was justified in allowing the carry forward of losses of Rs. 5,32,99,080/- for A. Y. 2007-08 to A. Y. 2010-11 even though there is a clear change in the shareholding pattern of the assessee company, thereby attracting by provisions of Section 79 of the I. T. Act, 1961, which prohibits the carry-forward and set-off of losses on account of changing shareholding pattern of a company". (ii) "Without prejudice to the above and on the facts and in the circumstances of the case and in law, whether the learned CIT(A) was justified in holding that the provisions of section 79 will not apply to the assessee company as it is deemed to be a public limited company on account of it being a subsidiary of HDFC Ltd, which is a public limited company even though the assessee company is not a wholly owned subsidiary of HDFC Ltd, a public limited company and thereby it does not satisfy the express provision state....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t is also the submissions of the assessee that purely legal ground is raised by the assessee in CO filed with the tribunal by way of ground no. 3 which is a ground raised for the first time before the tribunal seeking carry forward of brought forward loss relating to AY 2007-08 to 2009-10 as the provisions of Section 79 of the 1961 Act has no application to the assessee. It was submitted that the said loss was not claimed in the return of income filed with the Revenue but since it is purely a legal ground which does not requires investigation into new facts and the facts as are emanating from the orders of the authorities below are sufficient to adjudicate this ground no. 3 . Thus, prayer was made to admit the said additional grounds of appeal being ground no. 3 raised for the first time before the tribunal and adjudicate the same on merits. The Ld. DR objected to the condonation of delay application filed by the assessee seeking condonation of delay of 17 days in filing CO late beyond time stipulated u/s 253(4) of the 1961 Act and prayed that CO may be dismissed . Similar prayer was made for rejecting the ground no. 3 being raised for the first time before the tribunal. After care....
X X X X Extracts X X X X
X X X X Extracts X X X X
....reflected in AIR date base of the Revenue. The assessee had not reported this income of Rs. 6461/- in return of income filed with the Revenue while the same found mentioned in the AIR data base of the Revenue. The AO had observed from AIR data base i. e. 26AS , that the assessee had an undisclosed income-tax deducted at source (TDS) of Rs. 646. 31 which was deducted u/s 194H @10% on income of Rs. 6461/- The AO added the same to the income of the assessee vide assessment order dated 02-03-2015 passed by the AO u/s 143(3) of the 1961 Act. 6. 2 Aggrieved by the assessment order dated 02-03-2015 passed by the AO u/s 143(3) , the assessee filed first appeal before learned CIT(A) and contended that the aforesaid income of Rs. 6461/- as was reflected in 26AS i. e. AIR data base did not pertain to the assessee. The learned CIT(A) vide its appellate orders dated 22-12-2015 directed AO to verify the contentions of the assessee as to factual aspect of the matter and grant relief on merits. 6. 3 Now the assessee has filed the CO and raised this ground before the tribunal. At the outset Ld. Counsel for the assessee submitted that issue being small and there was no transactio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....id TDS of Rs. 646. 13 on behalf of the assessee. We order accordingly. 7. 1 The next issue is concerning carry forward and set off of brought forward losses. The assessee has claimed brought forward losses amounting to Rs. 5,32,99,080/- from A. Y 2007-08 to 2011-12 for set off. The AO observed that there was a change in the shareholding pattern in the case of the assessee in AY 2012-13 and the assessee was hit by the provision of Section 79 of the 1961 Act and the brought forward losses are to be disallowed which cannot be set off against current year profits. The assessee was show caused to explain the same and the assessee submitted as under:- "Carry forward and set off of losses wherein a change in shareholding has taken place in a previous year: In view of the decision of the Honourable High Court in case of CIT vs. Concord Industries Ltd. (1979) 119 ITR 458(Madras) and CIT vs Shri Shubhalaxmi Mills ltd. (2001)-119 Taxman 281 (Supreme Court) the section 79 is applicable only for the carry forward of losses (business) and the carry forward of unabsorbed depreciation are not covered by section 79. Therefore the depreciation losses are allowed to be car....
X X X X Extracts X X X X
X X X X Extracts X X X X
....duced copy of annual return of HDFC Ltd. for F. Y 2010-11 and in the said report it was clearly mentioned that the assessee was a subsidiary company of HDFC Asset Management Company Ltd. . The assessee also submitted certificate from the Company Secretary explaining that the assessee is a Public Limited Company in view of provision of Section 3(1)(iv)(c) of the Companies Act 1956. The assessee also relied upon the decision of the Hon‟ble Supreme Court in the case of CIT v. Shri Subhulaxmi Mills Ltd. (2001) 249 ITR 795(SC). 7. 4 The learned CIT-A called for the remand report from the AO with respect to the change in shareholding pattern of the assessee company during AY 2012-13 as the assessee was denying any change in shareholding pattern during the said period while the AO was contending that there was a change in shareholding pattern during said period. The AO submitted remand report to the learned CIT(A) as under:- "Carry-forward and set-ff of losses:- In respect of carry forward and set off of losses, section 79 says that:- "Notwithstanding anything contained in this chapter, where a change in shareholding has taken place in a previous....
X X X X Extracts X X X X
X X X X Extracts X X X X
....areholding pattern has remained the same. " 7. 5 The learned CIT-A observed that there was no change in the shareholding pattern in the case of the assessee in A. Y 2012-13. The learned CIT(A) observed that during the appellate proceeding the assessee has contended that the assessee is a domestic company in which public are substantially interested being a subsidiary of listed company-HDFC Ltd. The learned CIT(A) observed in view of above facts , the assessee has contended that provisions of Section 79 are not applicable in the case of the assessee. The assessee also relied upon provision of Section 2(18) of the 1961 Act and provisions of Section 2(71) of the Companies Act,1956. It is pertinent to mention here that the impugned assessment year under consideration before the tribunal is assessment year 2012-13 and Companies Act, 2013 has no application for the financial year 2011-12 and the erstwhile Companies Act ,1956 will continue to apply for financial year 2011-12 and relevant provisions of the Companies Act, 1956 are Section 2(35), 2(37) and Section 3 and 4 of the Companies Act 1956. The assessee also submitted that CBDT instruction no. 676 dated 05. 04. 1964 will be applic....
X X X X Extracts X X X X
X X X X Extracts X X X X
....07-08 to 2009-10 in the return of income filed with Revenue. The assessee however sought carry forward and set off of business losses from AY 2010-11 to 2011-12 and also the set off of total unabsorbed depreciation till AY 2011-12 which was also denied by the learned CIT(A). However, what appears from the content/body of the appellate order of learned CIT(A) is that the learned CIT(A) allowed the business loss from AY 2007-08 to AY 2011-12 onwards although in the conclusion the learned CIT(A) only allowed business loss and unabsorbed depreciation for AY 2012-13 to be carried forward aggregating to Rs. 6,41,93,826/-for the impugned assessment year 2012-13 which has caused prejudice to the Revenue as in the opinion of Revenue unabsorbed losses from AY 2007-08 to 2009-10 cannot be allowed as there is a change in shareholding of the assessee company which has infringed provisions of Section 79 of the 1961 Act, while the assessee is now aggrieved by non allowability of unabsorbed depreciation of earlier years to be carried forward and set off as well has raised new ground for the first time that business losses from AY 2007-08 to 2009-10 and also brought forward losses for AY 2010-11 be....
X X X X Extracts X X X X
X X X X Extracts X X X X
....evious year 2009-10 relevant to AY 2010-11 by virtue of its holding of compulsorily convertible preference shares and hence shareholding of Mr Ajay Bohora and Mr Anil Bohora got diluted to 37. 18% each aggregating to 74. 36% . The said DSP Merril Lynch Limited sold its shareholding to HDFC Limited during the previous year 2009-10 relevant to AY 2010-11. Thus the shareholding of these two shareholders namely Mr Ajay Bohora and Mr Anil Bohora got diluted from 100% to 74. 36% while HDFC Limited held 25. 64% during AY 2010-11. It was further submitted that in A. Y 2011-12 , there was fresh allotment by way of issue of new shares by the assessee company in favour of HDFC Ltd. and no fresh shares were allotted to Mr Ajay Bohora and Mr Anil Bohora, wherein the shareholding of HDFC Ltd. increased to 62. 28% while the shareholding of Mr Ajay Bohora and Mr Anil Bohora came down to 18. 86% each aggregating to 37. 72% . Thus , in AY 2011-12 HDFC Limited became majority shareholder holding 62. 28% and hence its shareholding increased beyond 51% and consequently bar created by provisions of Section 79 of the 1961 Act will come into play. it is submitted by learned counsel for the assessee that t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... that Section 79 has applicability only to a company in which public are not substantially interested . Our attention was drawn to provisions of Section 2(18) of the 1961 Act . The asseessee relied upon the decision of Hon‟ble Supreme Court in the case of CIT v. Italindia Cotton Company Private Ltd. (1988) 174 ITR 160(SC). It was submitted that in return of income , no losses were claimed for AY 2007-08 to 2009-10 and additional grounds are raised before ITAT for the first time for allowability of the said losses by filing CO. It was also a proposition raised by learned counsel for the assessee that if at the end of the relevant previous year under consideration more than 50% shares are held by the company in which public are substantially interested, then in that scenario it will not be relevant to see shareholding as at the end of the previous year in which losses took place . On being asked by the Bench at this point as to whether there is any authoritative pronouncement to that effect by any Court‟s , It was submitted by learned counsel for the assessee that there are no decisions of any Court available on this proposition. It was submitted by learned counsel for th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd Mr Anil Bohora came down to 18. 86% each aggregating to 37. 72% . The HDFC Ltd. was a listed company which was duly listed on the recognised stock exchanges in India. The assessee become subsidiary company of HDFC Ltd. , a company in which public are substantially interested , as shareholding of HDFC Limited in assessee company exceeded fifty percent in previous year 2010-11 relevant to AY 2011-12 . There was no change in the shareholding pattern of the assessee company in previous year 2011-12 (AY 2012-13). The AO did not allow carry forward of business losses as well unabsorbed depreciation till AY 2012-13 on the allegation that the assessee company is hit by bar created by provisions of Section 79 of the 1961 Act owning to the aforesaid change in shareholding pattern and consequently voting power of the shareholders. While learned CIT(A) allowed business losses and unabsorbed depreciation for AY 2012-13 to be carried forward to the subsequent years for set off , while rest of the business losses and unabsorbed depreciation of the preceding years stood disallowed by learned CIT(A) . 7. 13 Before proceedings further, it will be extremely useful and relevant to reprodu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ss and unabsorbed depreciation in different circumstances , the perusal of these two sections reveal that wherever statute wanted it has used unabsorbed depreciation and accumulated losses separately which is evident from provisions of Section 72A , while in Section 79 lawmakers have consciously restricted to disallowance of losses under certain circumstances while there is no mention of unabsorbed depreciation in Section 79. Provisions of Section 72A deals with provisions relating to carry forward and set off of accumulated loss and unabsorbed depreciation allowance in amalgamation or demerger etc while Section 79 of the 1961 Act deals with provisions for carry forward and set off of losses in case of certain companies in which public are not substantially interested and there has been a change in shareholding carrying not less than fifty-one percent of the shareholding. Taxing statute are to be construed strictly and when the language used in taxing statute is clear, plain ,simple and unambiguous , it is impermissible to insert or delete words into taxing statute which are not mentioned therein by the legislature. The taxing statute are to be strictly construed as per the languag....
X X X X Extracts X X X X
X X X X Extracts X X X X
....56 to understand whether the assessee company is a company in which public are substantially interested and if yes from which date and whether it is hit by bar created by provisions of Section 79 of the 1961 Act is concerned so far as carry forward and set off of business losses is concerned :- Income-Tax, 1961 Definitions. 2. In this Act, unless the context otherwise requires,- ***** ***** [(17) "company" means- (i) any Indian company, or (ii) any body corporate incorporated by or under the laws of a country outside India, or (iii)any institution, association or body which is or was assessable or was assessed as a company for any assessment year under the Indian Income-tax Act, 1922 (11 of 1922), or which is or was assessable or was assessed under this Act as a company for any assessment year commencing on or before the 1st day of April, 1970, or (iv)any institution, association or body, whether incorporated or not and whether Indian or non-Indian, which is declared by general or special order of the Board to be a company : Provided that such institution, association or body s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....participate in profits) were, as on the last day of the relevant previous year, listed in a recognised stock exchange in India in accordance with the Securities Contracts (Regulation) Act, 1956 (42 of 1956), and any rules made thereunder ; [(B)shares in the company (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits) carrying not less than fifty per cent of the voting power have been allotted unconditionally to, or acquired unconditionally by, and were throughout the relevant previous year beneficially held by- (a) the Government, or (b) a corporation established by a Central, State or Provincial Act, or (c) any company to which this clause applies or any subsidiary company of such company [if the whole of the share capital of such subsidiary company has been held by the parent company or by its nominees throughout the previous year. ] Explanation. -In its application to an Indian company whose business consists mainly in the construction of ships or in the manufacture or processing of goods or in mining or in the generation or distribution of electricity or an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bsp; ** (46) "share" means share in the share capital of a company and includes stock except where a distinction between stock and shares is expressed or implied; (47) "subsidiary company" or "subsidiary" means a subsidiary company within the meaning of section 4; (48) "total voting power", in regard to any matter relating to a body corporate, means the total number of votes which may be cast in regard to that matter on a poll at a meeting of such body, if all the members thereof and all other persons, if any, having a right to vote on that matter are present at the meeting and cast their votes; 3. Definitions of company, existing company, Private company and public company.- (1) In this Act, unless the context otherwise requires, the expressions "company", "existing company", "private company" and "public company", shall, subject to the provisions of sub-section (2), have the meanings specified below :- (i) "company" means a company formed and registered under this Act or an existing company as defined in clause (ii): (ii) "existing company" means a company formed and registered under any of the previous companies laws....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to be a subsidiary of another if, but only if, - (a) that other controls the compositions of its Board of directors; or (b) that other holds more than half in nominal value of its equity share capital; or (c) the first-mentioned company is a subsidiary of any company which is that other's subsidiary. Illustration Company B is a subsidiary of Company A, and Company C is a subsidiary of Company B. Company C is a subsidiary of Company A by virtue of clause (c) above. If Company D is a subsidiary of Company Commencement Company D will be subsidiary of Company B and consequently also of Company A, by virtue of clause (c) above; and so on. (2) For the purposes of sub-section (1), the composition of a company's Board of directors shall be deemed to be controlled by another company if, but only if, that other company by the exercise of some power exercisable by it at its discretion without the consent or concurrence of any other person, can appoint or remove the holders of all or a majority of the directorships; but for the purposes of this provision that other company shall be deemed to have power to appoint to a directorship ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mpany of the body corporate under the law of such country shall be deemed to be a subsidiary or holding company of the body corporate within the meaning and for the purpose of this Act also, whether the requirements of this section are fulfilled or not. 43A. PRIVATE COMPANY TO BECOME PUBLIC COMPANY IN CERTAIN CASES (1) Save as otherwise provided in this section, where not less than twenty-five per cent of the paid-up share capital of a private company having a share capital is held by one or more bodies corporate, the private company shall,- (a) on and from the date on which the aforesaid percentage is first held by such body or bodies corporate, or (b) where the aforesaid percentage has been first so held before the commencement of the Companies (Amendment) Act, 1960 (65 of 1960), on and from the expiry of the period of three months from the date of such commencement unless within that period the aforesaid percentage is reduced below twenty-five per cent of the paid-up share capital of the private company, become by virtue of this section a public company : Provided that even after the private company has so become a public company, its....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 3 and the number of its members may be, or may at any time be reduced, below seven. (1B) Where not less than twenty-five per cent of the paid-up share capital of a public company, having share capital, is held by a private company, the private company shall,- (a) on and from the date on which the aforesaid percentage is first held by it after the commencement of the Companies (Amendment) Act, 1974, or (b) where the aforesaid percentage has been first so held before the commencement of the Companies (Amendment) Act, 1974 on and from the expiry of the period of three months from the date of such commencement, unless within that period the aforesaid percentage is reduced below twenty-five per cent of the paid-up share capital of the public company, become, by virtue of this sub-section, a public company, and thereupon all other provisions of this section shall apply thereto : Provided that even after the private company has so become a public company, its articles of association may include provisions relating to the matters specified in clause (iii) of sub-section (1) of section 3 and the number of its members may be, or may at any time be reduced....
X X X X Extracts X X X X
X X X X Extracts X X X X
....company and every officer of the company who is in default, shall be punishable with fine which may extend to five hundred rupees for every day during which the default continues. (6) & (7) [Omitted by the Companies (Amendment) Act, 1988, with effect from 15-6-1988.] (8) Every private company having a share capital shall, in addition to the certificate referred to in sub-section (2) of section 161, file with the Registrar along with the annual return a second certificate signed by both the signatories of the return, stating either- (a) that since the date of the annual general meeting with reference to which the last return was submitted, or in the case of a first return, since the date of the incorporation of the private company, no body or bodies corporate has or have held twenty-five per cent or more of its paid-up share capital, ****** (b) [Omitted by the Companies (Amendment) Act, 1988, with effect from 15-6-1988], (c) that the private company, irrespective of its paid-up share capital, did not have, during the relevant period, an average annual turnover of [such amount as is referred to in sub-section (1A) or more], ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....relevant to AY 2009-10. In A.Y 2010-11 there was a change in shareholding of the assessee company wherein HDFC Ltd. purchased 25.64% shareholding of the assessee company shares from DSP Marril Lynch Ltd. The said DSP Merril Lynch Limited became shareholder to the tune of 25.64% during previous year 2009-10 relevant to AY 2010-11 by virtue of its holding of compulsorily convertible preference shares and hence shareholding of Mr Ajay Bohora and Mr Anil Bohora got diluted to 37.18% each aggregating to 74.36% on the said allotment of shares. The said DSP Merril Lynch Limited sold its entire shareholding in assessee company to the tune of 25.64% to HDFC Limited during the previous year 2009-10 relevant to A.Y. 2010-11. Thus the consolidated shareholding of these two shareholders namely Mr Ajay Bohora and Mr Anil Bohora got diluted from 100% to 74.36%, while HDFC Limited held 25.64% during AY 2010-11. In the previous year 2010-11 relevant to A.Y 2011-12, there was a fresh allotment of shares by way of issue of new shares by the assessee company in favour of said HDFC Ltd. while at the same time no fresh shares were allotted to other existing shareholders namely Mr Ajay Bohora and Mr Anil....
X X X X Extracts X X X X
X X X X Extracts X X X X
....18)(b) of the 1961 Act is not met and hence the assessee cannot be categorised as company in which public are substantially interested. One of the other conditions stipulated u/s 2(18) of the 1961 Act is w.r.t. company becoming a company in which public are substantially interested is that more than fifty percent shares carrying voting rights are beneficially held throughout the year by a company listed on recognized stock exchanges. HDFC Limited no doubt is a company which is listed on recognised stock exchanges in India. In AY 2010-11, HDFC Limited acquired 25.64% in assessee company which was later enhanced to 62.28% in previous year 2010-11(AY 2011-12). Thus, in the previous year 2010-11 relevant to AY 2011-12, a listed company HDFC Limited did held more than 50% shares in the assessee company but it did not hold the same for the entire previous year 2010-11 and hence the other condition for becoming a public company in which public are substantially interested as is stipulated in Section 2(18)(b)(B)(c) of the 1961 Act was also not met. Now, coming to provisions of Section 79 of the 1961 Act which is applicable to a company in which change in shareholding has taken place in the....